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LinkedIn contacts provide basis for trade secrets claim against terminated employee

By Brandi O. Brown, J.D.

Ruling on cross-motions for summary judgment in a suit brought by a cellular company against a former employee-turned-competitor, a federal district court in California found that fact issues remained regarding the employer’s claim that the employee misappropriated trade secrets by maintaining LinkedIn contacts with the company’s clients after his termination. The plaintiff’s motion for summary judgment was denied and the defendant’s motion was granted in part and denied in part (Cellular Accessories For Less, Inc v Trinitas LLC, September 16, 2014, Pregerson, D).

Termination. In 2010, the employee — who had worked for Cellular Accessories for six years — was fired. Shortly before his termination, he emailed himself a file (the “ACT file”) containing business contact information. After his termination, he maintained LinkedIn contact information that he had created while employed. He also emailed himself other files and documents related to customers, including information related to purchasing and billing preferences and client strategy. He started his own company, which directly competed with his former employer.

Signed agreements. While employed by Cellular, however, the employee signed two agreements. In 2004 he signed an employment agreement that included a clause related to Cellular’s proprietary information, which included “customer base.” In 2008, he also signed a confidentiality statement, stating that he would not “knowingly disclose, use, or induce or assist in the use or disclosure of any Proprietary Information . . . or anything related to Proprietary Information . . . without the Company’s prior express written consent.”

His former employer brought suit against him and his new company, alleging a variety of claims including copyright infringement, unfair competition, breach of competition, trade secret appropriation, unjust enrichment, and common law unfair competition. Both parties brought motions for summary judgment.

LinkedIn contacts and the ACT file. The employee moved for summary judgment on trade secret misappropriation claim. Central to that claim was the employee’s removal of the ACT file, although there were two additional types of information that could be subject to trade secret law, i.e., the LinkedIn contacts he created during his employment and the other files and documents related to customers that he removed. With regards to the ACT file, the court noted that customer lists were “not automatically trade secrets” because the information in many customer lists was easily found through public sources. A factual issue for determination, therefore, was how much effort went into putting the list together. Lists that were harder and more time consuming to put together were more likely to be trade secrets. Although the employee argued that Cellular did not carry its burden of showing such effort, the court determined that a fact dispute existed. Evidence showed that the list was at least partially compiled by cold-calls made by employees to determine appropriate procurement contacts at businesses. The employee also averred that some of his contacts were automatically suggested by LinkedIn. Thus, the court concluded that there was a genuine issue of fact regarding the degree of difficulty involved.

As for the employee’s LinkedIn contacts, he argued that they were not a trade secret because the employer had encouraged employees to use LinkedIn. He also contended that because his contacts were viewable by any other contact, they were not trade secrets. The employer, however, argued that such sharing was not automatic. The court declined to take judicial notice of LinkedIn’s functions and concluded that a fact issue remained regarding the LinkedIn information. Similarly, it found that fact issues remained regarding the third category of allegedly misappropriated information, including the economic value of the customer preference information and a memo related to one particular customer.

Breach of contract. Both parties moved for summary judgment on Cellular’s breach of contract claim against the employee. The company argued that the two agreements signed by the employee — the employment agreement and the confidentiality statement — mandated that he could not disclose proprietary information. It contended that because it was undisputed that the employee took the ACT file and other information, it was entitled to judgment as a matter of law. On the other hand, the employee contended that the confidentiality statement was not a valid contract. However, the court found that both the agreement and the confidentiality statement could be found by a trier of fact to be valid agreements. The employment agreement did not specify the length of the agreement or its end date and, therefore, the court presumed that it was an at-will agreement. Without an integration clause, the court explained that the agreement could be, and was, modified by the later confidentiality statement. The employee accepted it by continuing his employment.

However, the question was whether the employee violated that contract. The court determined that it could not be said, as a matter of law, that he had not breached it. Nevertheless, the court granted the employee’s motion for summary judgment on the claim because Cellular failed to carry its burden of putting forth evidence of a loss of business resulting from the breach. The employer’s exhibits showed that the employee’s business experienced sales volume increase that included some of the employer’s customers. However, it showed nothing about its own loss. The only piece of evidence offered was in a declaration by Cellular’s CEO that in 2012 there was a reduction in volume of sales to one customer, without any specific information. That proof was not sufficient, the court concluded.

Tort claims. The employee also contended that several of Cellular’s tort claims were based on the same “nucleus of facts” as the trade secrets claim and, thus, were preempted. Therefore, to the extent that those causes of action (statutory and common law unfair competition, unjust enrichment, and interference with prospective business advantage) were based on that nucleus of facts as the trade secret claim, the court granted the motion. However, noting that each claim also was based on alternative facts, the court concluded that the claims partially survived preemption.

However, the court fully granted the employee’s motion for summary judgment on Cellular’s claim for trade libel based on statements allegedly made by the employee to customers after his termination.